A mutual fund is a convenient way to invest in a portfolio of securities. These securities might be stocks, bonds, money market instruments or any other security. Your role is to pool money with other investors to invest in this fund. A professional fund manager makes the decision-making regarding the investments. There are several benefits to investing in mutual funds. Read here to find 7 of those benefits.
An asset management company creates a mutual fund. The fund gets money from investors who have common investment objectives. Each fund will have a scheme information document stating the investment objectives, the risk factors, the investment strategies, the scheme performance and other offer details. The investors can make a decision to invest in these funds based on these details.
The fund manager will make investment decisions based on the objectives of each fund so that the investors are assured that their money can offer steady returns. There are several benefits to investing in mutual funds. Let us see a few of them.
7 Benefits of investing in a mutual fund:
You do not need to be a high net-income individual to start investing in mutual funds, even a few hundred rupees is enough to start investing in them. Most mutual funds have the option for investors to pay via a SIP. That is called a Systematic investment plan. In this plan, you can make regular and equal payments into the fund. So, you do not have to worry about the cost. You can permanently save and invest little by little in a fund based on your risk and reward profile.
Unlike shares, when you invest in mutual funds, you do need to worry about your fund’s performance or when to buy and sell. Your fund is in the hands of a professional fund manager who will research, analyse, and invest in the stocks and securities that are only according to the fund’s investment objectives. The fund manager will also manage the performance of the fund and make decisions accordingly.
Spreading out of risks:
One of the main risks involved in investing is putting all your money in one place. It is a bit like putting all your eggs in one basket. If the basket falls, all the eggs will break. You do not need to worry about that when you invest in mutual funds. The securities in mutual funds are diversified. You can invest in a diversified portfolio. That will help spread out your risks. This way, if the value of one mutual fund falls, you can always count on the other funds in your portfolio to make up for the loss.
An equity-linked saving scheme is a type of tax-saving mutual fund. According to Section 80C of the Income Tax Act, you are eligible for tax deductions of up to ₹1,50,000 for that financial year when you invest in this fund.
Regulated financial instrument:
Mutual funds are regulated financial instrument. They are regulated by the Securities Exchange Board of India. This regulation will help serve your best interest. There is transparency in letting you know details about the fund before you invest in it. That will help you make an informed decision knowing that your money is invested in a relatively safe asset.
An asset management company offers mutual funds across a variety of investment options. Mutual funds are classified into several categories. Among other classifications, each investor can also choose a fund based on the asset class, risk profile, investment objective, reward profile and time.
Low transaction costs:
The asset management company does not levy high transaction costs on the investors. This is because they buy and sell securities in large volumes, the transaction costs are lower. If you try to invest in these securities as an individual, the costs will be higher.
ICICI direct offers investors, a way to choose and invest in mutual funds from about 38 leading asset management companies. Their money app provides an easy, hassle free way in choosing research backed mutual funds across various fund categories.
While there are several benefits of investing in a mutual fund, you need to know your investment goals and objectives before choosing and investing in a fund. You also need to have a firm understanding of the risks involved along with good knowledge of the past performance of the fund. Investing in the right mutual fund’s plan can help you reach your financial goals with ease.
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